# Briskay Aviation Accoutning Assingment Help With Solution

## Briskay Aviation Accoutning Assingment Help With Solution

Will, a college student, plans to raise money during his final term by selling mobile phones. He buys them for \$30 and pays average mail costs of \$2 on internet sales. He sells them for \$50 cash or \$55 on credit. 10% of all sales are cash sales to other students. The remaining sales are internet credit sales. He will grant a 4% discount if payment is made within 10 days of the order (estimated to be 30% of credit sales) and 2% discount if paid in the month of sale but after the first 10 days (20% of credit sales). The remaining credit customers are estimated
to pay as follows:

One month following the sale 25%
Two months following the sale 20%
Uncollectable 5%
The sales forecast (in UNITS) is as follows:
September 12 000; October 22 000; November 32 000; December 40 000;

All mail/postage costs on credit sales are paid in cash in the month of sale. From October he plans to pay his supplier 50% in the month of purchase and 50% in the month following. A 6% discount is granted on payments made in the month of purchase. However, he will not be able to take any discounts on September purchases owing to
constraints on his cash flow. That is, all September purchases will be paid for in October. There are 5000 phones on hand (purchased in August and to be paid for in September), and it is planned to maintain a sufficient end-of-the-month inventory to meet 70% of the next month’s sales. Receivables and payables are carried at gross.
Required

a. Prepare schedules for monthly cash receipts and cash disbursements for the life of this venture. Show all workings and supporting schedules.
b. Will had planned to simply write off uncollectables. However, his accounting professor suggested he turn them over to a collection agency. How much could Will let the collection agency keep (in dollars) so that so would be no worse off?

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2. Briskay Aviation is a discount airline which operates on one major route between Brisbane and Mackay. It is a very competitive route with many operators. Through good service and very careful cost control, Briskay Aviation has been successful over the years, maintaining an occupancy rate of 60% of the 250 seats available on each of its 60 flights per month. Ticket prices average \$120 one-way, while costs per flight work out at: Fuel \$3,200; Crew \$2,250; Ground support, maintenance, government charges, etc. \$7,900.

The ticket price includes a snack and drinks which costs the airline \$10 per passenger. Booking costs and government levies amount to approximately \$6 per passenger. Briskay Aviation pays tax at a rate of 25%. Next month food and drink costs are expected to rise by 30%. Because of the recent world oil price increases there is also the prospect of aviation fuel costs going up at some stage soon. Because the discount airline game is extremely price
sensitive, Briskay Aviation is reluctant to increase ticket prices.

Required:
a) What is Briskay Aviation’s current monthly operating result?
b) What is the company’s current break-even point in passengers per flight, and occupancy
%?
c) Next month (November), assuming food and drink costs do increase:
 what ticket price would need to be charged to maintain the current contribution margin ratio?
 if ticket prices are not increased, how many passengers would need to be achieved to maintain the company’s current after-tax operating result ? What occupancy rate would this represent?
d) In addition to the increase in costs of food and drink, if aviation fuel prices increase by 20% in December, how many passengers would then be needed to maintain the company’s current after-tax operating result, without increasing ticket prices? What occupancy rate would this represent?

3.The Ross Company has always allocated all overhead costs to products based upon the number of units produced. Over the years overhead costs have grown enormously and the firm’s profits have been falling. During this same time the firm has substantially broadened the lines of products it produces.

During the past year overhead amounted to \$1.65 million. A study reveals that \$350,000 of this is primarily depreciation on buildings and equipment, heat, light, and similar common costs. The remaining \$1,300,000 is primarily for salaries for people who manage the flow of production – production schedulers, expeditors, equipment setup workers, and others needed to modify production lines whenever a department switches from manufacturing one type of product to another, The following historical records have been developed for these production expeditors.

Year Total Units Number of Number of Expeditors’
Produced Product Lines Expeditors Salaries
2009 2,400,000 78 4 \$ 184,000
2010 2,600,000 114 6 \$ 282,000
2011 2,750,000 165 9 \$ 436,500
2012 2,550,000 240 12 \$ 606,000
2013 2,700,000 360 18 \$ 927,000
2014 2,500,000 480 25 \$1,300,000
Last year’s production and the direct costs incurred for a small sample of the firm’s products are summarised below:
Product
J-275 R-895 T-28A Y-477
Number of units 200,000 1,000 14,000 90,000
Material costs \$235,000 \$590 \$2,800 \$50,000
Labour Costs \$65,000 \$80 \$1,100 \$10,000

Required
a. Develop the cost of each product in the sample using the firm’s current (2014) allocation base.
b. Develop two allocation bases for the overheads, one spreading remaining common costs over units produced and a second spreading production expediting costs over product lines. Determine the cost of each product in the sample using these two new rates.
c. Comment on what this reveals about the product lines.

4.
Part A
The Wheels Division (WD) of Rocky Industries manufactures go-carts and other recreational vehicles. WD is considering building a new plant in 2015. The investment will cost \$7.5 million. The expected revenues and costs for the new plant in 2015 are
Revenues \$4,600,000
Variable costs 1,100,000
Fixed costs 2,120,000
Operating income \$ 1,380,000

WD’s ROI in 2014 is 24%, and its return on sales (ROS) is 19%. ROI is defined as operating profit/income divided by investment assets. The bonus of Marilyn Murphy, the division manager of WD, is based on division ROI.
Required :

1. Explain why Murphy would be reluctant to build the new plant. Show your computations.
2. Suppose Rocky Industries uses RI to determine Murphy’s bonus. Suppose further that the required rate of return on investment is 15%. Will Murphy be more willing to build the new plant? Explain.

Part B
The management of Rocky Industries is considering the following alternative compensation arrangements for Marilyn Murphy, the division manager of WD:
 Make Murphy’s compensation a fixed salary without any bonus. Rocky’s management believes that one advantage of this arrangement is that Murphy will be less inclined to reject future investments just because of their impact on ROI or RI.
 Make all of Murphy’s compensation depend on the division’s RI. The benefit of this arrangement is that it creates incentives for Murphy to aggressively seek and accept all proposals that increase WD’s RI.
 Evaluate Murphy’s performance using benchmarking by comparing WD’s RI against the RI achieved by managers of other companies that also manufacture and sell gocarts and recreational vehicles and have comparable levels of investment. Rocky’s management believes that the advantage of bench-marking is that it focuses attention
on Murphy’s performance relative to peers, rather than on the division’s absolute performance.

Required :
1. Assume Murphy is risk adverse and does not like bearing risk. Using concepts of performance evaluation described in this course, evaluate the three proposals that Rocky’s management is considering. Indicate the positive and negative features of each proposal.
2. What compensation arrangement would you recommend? Explain briefly.

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